Marketing Chapter 10 part 7

predatory pricing

A strategy to intentionally sell below cost to push a competitor out of a market, then raise prices to new highs, is called ________. _______ is illegal but prosecuting it can be very tricky because intent must be proved. Other plausible explanations exist for drastic price reductions including inventory overstocks, so proving that predatory pricing has occurred is difficult.

Price discrimination

________ occurs when a seller offers different prices to different customers without a substantive basis, such that competition is reduced. Robinson-Patman Act explicitly prohibits giving, inducing, or receiving discriminatory prices except under certain specific conditions such as situations where proof exists that the costs of selling to one customer are higher than to another (such as making distributions to remote locations) or when temporary, defensive price reductions are necessary to meet competition in a specific local area.

Fair trade laws

________ were popular in the past because they allowed manufacturers to establish artificially high prices by limiting the ability of wholesalers and retailers to offer reduced or discounted prices. ______ varied greatly from state to state, depending largely on how strong the independent retailer and wholesaler lobby was in a particular locale. These laws protected mom-and-pop operators from the price discounting by chain stores.

bait and switch

a seller may advertise an item at an unbelievably low price to lure customers into a store, and once the customer arrives refuse to sell the advertised item and instead push a similar item with a much higher price and higher margin. When this occurs and it can be demonstrated that a seller had no true intent to actually make the lower-priced item available for sale, the practice is called _______ and is illegal.

1- minimum markup laws 2- loss leader products

Closely associated with fair trade laws are __1____ , which require a certain percentage markup be applied to products.In one extreme case in the early 1970s, the State of Oklahoma took legal action against Target Corporation to force the discounter to obey Oklahoma's minimum markup law that prohibited advertising a wide variety of merchandise for less than a 6 percent profit. This effectively shut down Target's ability to advertise ____2_____, items (typically paper towels, toilet paper, toothpaste, and the like) sacrificed at prices below cost to attract shoppers to the store.

price-fixing

Companies that collude to set prices at a mutually beneficial high level are engaged in _______ .

deceptive pricing

Knowingly stating prices in a manner that gives a false impression to customers is ________ . _________ practices are monitored and enforced by the FTC. ________ may take several forms. Sometimes, firms will set artificially high reference prices for merchandise just before a promotion so that an advertised sale price will look much more attractive to customers.

1- price fixing 2- price discrimination 3- deceptive pricing 4- predatory pricing 5- fair trade and minimum markup laws

Legal considerations in pricing:

horizontal price-fixing

When competitors are involved in the collusion, _______ occurs. The Sherman Act forbids ________, which could result in overall higher prices for consumers since various competitors are all pricing the same to maximize their profits.

vertical price-fixing

When independent members of a channel (for example, manufacturers, distributors, and retailers) collude to establish a minimum retail price, referred to as retail price maintenance, ________ occurs. ________ is illegal under the Consumer Goods Pricing Act, and for good reason. __________ assures everybody in the channel is satisfied with their "cut" of the profits, but the profit boost is achieved by increased prices to consumers.